A bookkeeper in a small business performs many of the duties that accountants do for big businesses: Keeping ledgers, running trial balances, making journal entries, and preparing financial statements and tax returns. A bookkeeper may take full charge of the finances of a small business, and cover chores like opening and closing books at the beginning and end of accounting periods, and issuing financial statements to the owners and managers of the business. In a bigger business, a bookkeeper may simply prepare these documents for review by a qualified accountant.
Given that poor bookkeeping is one of the reasons small businesses fail, the Small Business Owner who cannot employ an accountant must hire a bookkeeper. Here are six benefits that bookkeeping can add to a small business:
1. Strategic Focus: The Small Business Owner is always thinking of how to grow the business. Bookkeeping provides the information for the Small Business Owner to sharpen the strategic and tactical focus of moving the business towards its short and long term goals. The Small Business Owner must use the information that bookkeeping offers to track and adjust its goals accordingly; particularly through preparation of the budget for the
The budget creates the financial roadmap for the business. It plans for expected income and expenses, and the resources needed to achieve them. The budgeting process, by projecting the income and expenses of the business, equips the Small Business Owner to plan the future of the business. By recording the past and present conditions of the business, bookkeeping gives a clear picture of what is working, what is not working and what needs to be done to grow the business.
2. Staying Organised: The Small Business Owner knows that getting and staying organised is a skill that is essential for success in business. This skill is reflected in the ability of the business to produce any information about the business as and when needed.
Such information include the financial records of the business, which may be required by interested parties, like lenders, investors, employees, customers and tax authorities. Failure to provide such information when requested is the sign of a disorganised and poorly managed business. The presence of an efficient bookkeeper ensures that the financial records of the business are organised, easy to locate and available for end users. This state of financial affairs puts the mind of the Small Business Owner at ease, and more focused on other areas of the business.
3. Business Analytics: Bookkeeping provides a management tool for the Small Business Owner to analyse and understand the business. The financial statements regularly generated by the bookkeeper and used for analysis help the Small Business Owner to track the cash inflows and outflows of the business.
These analytics reveal the business lines that are yielding desired results and those that are not. They give the Small Business Owner access to available financial information, and inform better decisions about the business. The bookkeeper provides these information, which enables the business to focus on the strengths of the business, with a view of doing more of what is succeeding, and concentrating on its weaknesses, with a view to improving on them.
4. Financial Management: Bookkeeping enables the Small Business Owner to control the finances of the business. Bookkeeping provides financial information about the business, for a given period of time, in the forms of the balance sheet, income statement, and cash flow statement. These statements offer a snapshot of the business, which shows the Small Business Owner how the business is performing.
Bookkeeping shows how the business is spending money, and invoices owed by the business or its customers. It tells the Small Business Owner if the business is paying its bills on time and getting paid for its products or services on time. It is the measure of the cash inflow and outflow that keeps the business running.
Bookkeeping improves the cash flow of the business. The regular recording of revenues, receivables, expenses and liabilities allow the business to manage the payments of invoices of customers and vendors. Bookkeeping helps to improve cash flow by providing information on outstanding invoices, which can be used to improve the cash flow policies of the business; like shortening the time for receivables and/or lengthening the time for payables, and increasing available cash at a given time.
Bookkeeping also tells current and future investors about the value of investments in the business. The balance sheet, income statement and cash flow statement present the value of the business. Prospective investors are more likely to invest in a business that has correct and current financial records.
5. Growth and Profitability: Bookkeeping tracks the growth of the business. Trading activities produce information over time, which show the trends and cycles of the business. This enables the Small Business Owner to compare performance indicators across months and years, and tell if the business is growing.
Bookkeeping also answers the question: Is the business profitable? The income statement, one of the financial statements produced by the bookkeeper, tells whether the business is making or losing money. It tells the Small Business owner how well, or how bad, the business is doing.
6. Tax Returns: These are required by law, the key ones being company income tax of the business and personal income tax of its employees. Instead of muddling between personal finances and business funds, or scrambling through files for missing invoices or receipts, the wise Small Business Owner can make the tax filing process more efficient by simply engaging an in-house or freelance or outsourced bookkeeper. An experienced bookkeeper, aided by an automated accounting software, will organise and centralise the financial information of the business, and get the Small Business Owner ready at tax time.